What's with dividend fetishes?

[Juked07]

Taxes. As others have mentioned.

And I am one of those others. You only have to hold an investment for a year to get long term cap gain treatment for taxes. Non professionals really have no reason for trading on a shorter time scale, barring emergency liquidity needs.

But that's a thesis for a whole new rant. I'd be happy to engage if you're interested, but I think that deserves its very own thread!

Besides, market making firms would go out of business if everyone started investing so rationally, and I wouldn't want that.

 

[Juked07]

you don't understand that the "scam" Hugo Drax described is perfectly legal and accepted practice. If the executive options granted are essentially offset by share buybacks, shareholders are not diluted and thus it's hard to say how their equity was affected.

Even if you exclude that scam, buybacks are not easily justified. Companies are not objective when looking inward and frequently "invest" poorly. Netflix blew off hundreds of millions of dollars buying back shares averaging roughly $200. Now even though they're the leaders in streaming, they face a potentially existential threat as they'll need significant cash to acquire content licenses going forward. For all the well-documented marketing blunders Netflix made to piss off customers, share buybacks are arguably the worst single mistake Reed Hastings and company should be fired for.

After thinking a bit more, I think you're onto something regarding buybacks. If I'm not mistaken, companies have to announce they're buying, and once they do, they're committed to do it. This will lead to HORRIBLE fills!

Liquidity providers will fade a ton knowing a big buyer is coming in, and other market players can front run you because they know stock will tick up, and it's not even illegal. Maybe buying stock as an insider in any significant volume guarantees bad execution.

If that's true, and buying stock -> loss of value through market impact, paying divs could well be optimal.

That's kind of exciting.

 

[FoBoT]

some companies just have no chance for significant growth, so they give dividend

 

[manly]

After thinking a bit more, I think you're onto something regarding buybacks. If I'm not mistaken, companies have to announce they're buying, and once they do, they're committed to do it. This will lead to HORRIBLE fills!

Liquidity providers will fade a ton knowing a big buyer is coming in, and other market players can front run you because they know stock will tick up, and it's not even illegal. Maybe buying stock as an insider in any significant volume guarantees bad execution.

If that's true, and buying stock -> loss of value through market impact, paying divs could well be optimal.

That's kind of exciting.

they announce board authorization, I hope they aren't also committed to use the dry powder regardless of valuation.

But in thinking about technicals, you're missing the fundamental problem that a company's executive(s) are inherently biased to upside. What exec doesn't have a primarily rosy view of his own business, even if it's restructuring? Even when there was a big debate in 2011 about whether Netflix stock was a bubble ready to pop and there were hedge funds publicly shorting it, they were still buying back shares in the low-$200s? That's simply insane if you look at it objectively.

I know that's just one example and I haven't read academic studies but I think Warren Buffett has stated many times that companies generally are poor investors in their own shares. That's why he rarely buys back shares of Berkshire Hathaway and as usual, requires a "margin of safety" to even consider it.

 

[JMapleton]

You can have your POS blue chip stocks.

In my personal opinion, I would only invest in high dividend oil, gas, and real estate trusts.

Blue chips are nothing but a flavor of the week.

 

[sactoking]

some companies just have no chance for significant growth, so they give dividend

This. It's called the "lifecycle of a stock". It's taught in every introductory investment course ever. Look it up.

Once a company reaches a point where continues growth is unsustainable or detrimental it has to do something with the cash it accumulates. Assuming M&A is out (since that's growth) share buybacks aren't a viable option since a corporation's ability to hold treasury stock is limited. You can sit on it and do nothing, like Apple, or you can issue dividends like pretty much every other non-growth large cap in the country. Investors tend to like the latter over the former.

 

[Mike Gayner]

hurr durr i did a finance

 

[dullard]

The idea of a company is pretty simple. A company takes investments, uses those investments to maximize profit, and returns any excess profits (those that cannot be used to maximize future profit) to investors. Take away that final step and you fundamentally break the equation.

Remember, over the history of the stock market, about half of all gains were in the form of dividends. When people say you historically make about 10% on stocks, that was ~5% on dividends and ~5% on stock price gains.

Non-dividend paying stocks end up with about ~5% on stock price gains and ~5% of mystery. Is that extra money handled well which add up to 10% stock gains? Or is it squandered leaving you with just the 5% in stock gains? It is a needless gamble. Take the 5% cash and 5% stock gain and be happy. If you want stock price gains instead of cash, reinvest that dividend back into the same company. Net effect to you is just about the same (even including the capital gains taxes on both, which are often long-term, there isn't much mathematical difference).

You are correct that dividends shouldn't be paid until the profit has been maximized. Reinvest it into the business to grow more, reinvest it to increase efficiency and reduce costs, etc. But many companies reach a point where the profit is already maximized. After that, that excess cash is just looking for trouble:

* Companies lose focus and expand into markets that are not their core business and often don't fit their sucessful business model. It may work, or more often than not, it is a disaster. How many mergers have occured when the company flush with cash overpaid? In any event (good or bad idea), mergers start with a net negative: premium required to entice the merger into happening + merger fees / royalties + merger transition costs. None of those costs are adding to your bottom line. If you wanted ownership of both company A and B, it would be better for you to buy shares in both rather than buying A and hoping the merger between A and B is a good one.

* Companies over-expand in a stagnant or dying buisness and that investment is now a liability. (Too many leases on property that isn't generating profits, too many employees that are a drain, too much capital that is now worth far less, etc).

* Companies buy back stock, excessively give it to top employees, who then sell the stock (net loss of money from the company, net zero for you since a share was both bought and sold, net gain to the top brass). Remember a stock buyback is no guarantee of a stock going up in value. Heck, that is almost the definition of a stock option. An option receiver will usually buy that stock from the company and sell it to the open market on the same day. That net transaction (company buys stock, CEO sells it) is NOT going to benefit you, since in the end there are the same number of shares on the market.

* Companies often buy back stock at high stock prices and years later need to raise cash at a much lower stock price. A company buying a share at $100 and later selling it (or issuing a new one) at $50 is a long-term net loss to you.

* Stock buybacks and similar schemes are short-term focuses. They take the CEO's and board's attention and turn it to short-term stock prices. That leaves far less time for them to think about the long-term. As you seem to be proposing that we should be buy and hold investors for the long term, I would think you'd propose that companies focus on long-term gains.

* Companies flush with cash often overpay employees, get excessive real-estate, use excessive interior decorators, etc. None of these maximize profits nor help your stock price. Enron went bankrupt yet had millions of dollars worth of art - that certainly wasn't money well spent (although, yes, they had bigger problems).

* I could go on and on. Dividends are the mechanism set up for you to get your investment back + gains. Don't muck with it. Dividend paying stocks get you regular profits. Non-dividend paying stocks have only two possibilities (a) finding a bigger sucker to pay more than you did, or (b) going bankrupt and you lose all. There is nothing wrong with taking the regular profits and keeping the company focussed on maximizing long-term profits.

 

[MrColin]

I think Op is confused. Share price is determined in the marketplace, not by value of assets - liabilities. High profits >> ability to pay high dividends >> higher value of stock. You could always reinvest dividends paid to you in more stock if your focus is on capital appreciation.

 

[ShawnD1]

I took an introductory investment class a couple years ago. One of the things to take away from the class was that an overwhelming majority of the money made in the stock market is in the form of dividends, something like >80%. It's not hard to understand why that might be true.

growth:
-you must buy low
-you must watch the stock carefully (tedious if you have lots of stocks)
-you must sell at the right time
-now use that cash to buy something else
-watch that something else carefully
-sell at the right time

dividends:
-buy low (no more steps required until you need to cash out)

Psychology plays a bit into this. Some people are just retarded. They see their stock go down and OMG SELL. So..... buy high sell low? OK. That makes sense I guess... :\
Dividend stocks generally don't need to be watched. That means there's less chance of doing something stupid like selling when they go down instead of selling when they go up.

Buying growth stocks is generally a bit more risky than dividend stocks. If you expect the price to jump dramatically, that often means it's based on nothing other than psychology. One guy buys it, then lots of people buy it, price goes up, then you sell. It could just as easily go the other way. Hype goes in the other direction, everyone sells, and you're screwed.
Dividend stocks are bought for different reasons. Nobody buys IBM then expects the price to skyrocket. It doesn't drop like a rock either. It's very stable, reliable. You're pretty much 100% sure you will make money if you buy IBM.

 

[LurkerPrime]

Dividend stocks are usually very stable investments (as in safe). Right now alot of good reliable companies are paying dividends in the range of 3-5%. That return blows treasuries out of the water. Also alot of these companies have survived the "crisis" in the last few years and have come out much leaner and are seeing good revenue and profit growth. That then allows them to increase thier dividend payments (which leads to a corresponding jump in stock price). Both of those things benifit you greatly as your quarterly dividend check gets bigger and the value of your stock grows. Also as dividend payouts are increased your ROI on your original investments increases.

As an example I invested in Dow chemical company in 2009. At the time the dividend payout was 15 cents quarterly (5.12% annual on my original investment). Now the quarterly dividend is 25 cents and I'm making an 8.56% annual return on my original investment for doing absolutely nothing. These annual returns dont include any capital gains, and they dont require any active participation on my part.

Also dividends get preferential treatment under IRS publication 550. If your dividends meet the requirement to be "qualified" then if your below the 25% tax rate, the tax on the dividends is 0%. If you're in the 25% tax bracket or higher, then you just pay the capital gains rate of 15%. This makes dividend paying stocks a great investment for low/medium income households just on tax purposes alone. Also no active management is required and no buy/sell broker fees are incurred to recieve dividends.

 

[Kwatt]

I started in some DRIP plans in the 90'S. Automatic contributions from my checking account every month. 100 % dividend reinvestment. Starting this year zero new contributions and 10 % reinvestment every quarter I will get a check for 90 % of the dividends. At my PPS I'll average 5.25 % for life. And the company's have all raised their dividends every year for at least the last 10 years. If I need the cash I'll use it if not I'll reinvest it. I don't have to worry about selling in a down market and built in inflation protection.

What is not to like?


.

 

[Hugo Drax]

Your post is the best explanation on the subject here and should be made a sticky. Hopefully the fresh noobs from MBA school will get it.

Another good example of Corporations squandering shareholder money VS paying out dividends.

DELL. when they used it to short puts on its own stock, hoping to use the premiums to boost EPS. Unfortunately for the shareholders those OTM puts went deep in the money and shareholders got the big shaft.

The idea of a company is pretty simple. A company takes investments, uses those investments to maximize profit, and returns any excess profits (those that cannot be used to maximize future profit) to investors. Take away that final step and you fundamentally break the equation.

Remember, over the history of the stock market, about half of all gains were in the form of dividends. When people say you historically make about 10% on stocks, that was ~5% on dividends and ~5% on stock price gains.

Non-dividend paying stocks end up with about ~5% on stock price gains and ~5% of mystery. Is that extra money handled well which add up to 10% stock gains? Or is it squandered leaving you with just the 5% in stock gains? It is a needless gamble. Take the 5% cash and 5% stock gain and be happy. If you want stock price gains instead of cash, reinvest that dividend back into the same company. Net effect to you is just about the same (even including the capital gains taxes on both, which are often long-term, there isn't much mathematical difference).

You are correct that dividends shouldn't be paid until the profit has been maximized. Reinvest it into the business to grow more, reinvest it to increase efficiency and reduce costs, etc. But many companies reach a point where the profit is already maximized. After that, that excess cash is just looking for trouble:

* Companies lose focus and expand into markets that are not their core business and often don't fit their sucessful business model. It may work, or more often than not, it is a disaster. How many mergers have occured when the company flush with cash overpaid? In any event (good or bad idea), mergers start with a net negative: premium required to entice the merger into happening + merger fees / royalties + merger transition costs. None of those costs are adding to your bottom line. If you wanted ownership of both company A and B, it would be better for you to buy shares in both rather than buying A and hoping the merger between A and B is a good one.

* Companies over-expand in a stagnant or dying buisness and that investment is now a liability. (Too many leases on property that isn't generating profits, too many employees that are a drain, too much capital that is now worth far less, etc).

* Companies buy back stock, excessively give it to top employees, who then sell the stock (net loss of money from the company, net zero for you since a share was both bought and sold, net gain to the top brass). Remember a stock buyback is no guarantee of a stock going up in value. Heck, that is almost the definition of a stock option. An option receiver will usually buy that stock from the company and sell it to the open market on the same day. That net transaction (company buys stock, CEO sells it) is NOT going to benefit you, since in the end there are the same number of shares on the market.

* Companies often buy back stock at high stock prices and years later need to raise cash at a much lower stock price. A company buying a share at $100 and later selling it (or issuing a new one) at $50 is a long-term net loss to you.

* Stock buybacks and similar schemes are short-term focuses. They take the CEO's and board's attention and turn it to short-term stock prices. That leaves far less time for them to think about the long-term. As you seem to be proposing that we should be buy and hold investors for the long term, I would think you'd propose that companies focus on long-term gains.

* Companies flush with cash often overpay employees, get excessive real-estate, use excessive interior decorators, etc. None of these maximize profits nor help your stock price. Enron went bankrupt yet had millions of dollars worth of art - that certainly wasn't money well spent (although, yes, they had bigger problems).

* I could go on and on. Dividends are the mechanism set up for you to get your investment back + gains. Don't muck with it. Dividend paying stocks get you regular profits. Non-dividend paying stocks have only two possibilities (a) finding a bigger sucker to pay more than you did, or (b) going bankrupt and you lose all. There is nothing wrong with taking the regular profits and keeping the company focussed on maximizing long-term profits.

 

[ponyo]

The idea of a company is pretty simple. A company takes investments, uses those investments to maximize profit, and returns any excess profits (those that cannot be used to maximize future profit) to investors. Take away that final step and you fundamentally break the equation.

Remember, over the history of the stock market, about half of all gains were in the form of dividends. When people say you historically make about 10% on stocks, that was ~5% on dividends and ~5% on stock price gains.

Non-dividend paying stocks end up with about ~5% on stock price gains and ~5% of mystery. Is that extra money handled well which add up to 10% stock gains? Or is it squandered leaving you with just the 5% in stock gains? It is a needless gamble. Take the 5% cash and 5% stock gain and be happy. If you want stock price gains instead of cash, reinvest that dividend back into the same company. Net effect to you is just about the same (even including the capital gains taxes on both, which are often long-term, there isn't much mathematical difference).

You are correct that dividends shouldn't be paid until the profit has been maximized. Reinvest it into the business to grow more, reinvest it to increase efficiency and reduce costs, etc. But many companies reach a point where the profit is already maximized. After that, that excess cash is just looking for trouble:

* Companies lose focus and expand into markets that are not their core business and often don't fit their sucessful business model. It may work, or more often than not, it is a disaster. How many mergers have occured when the company flush with cash overpaid? In any event (good or bad idea), mergers start with a net negative: premium required to entice the merger into happening + merger fees / royalties + merger transition costs. None of those costs are adding to your bottom line. If you wanted ownership of both company A and B, it would be better for you to buy shares in both rather than buying A and hoping the merger between A and B is a good one.

* Companies over-expand in a stagnant or dying buisness and that investment is now a liability. (Too many leases on property that isn't generating profits, too many employees that are a drain, too much capital that is now worth far less, etc).

* Companies buy back stock, excessively give it to top employees, who then sell the stock (net loss of money from the company, net zero for you since a share was both bought and sold, net gain to the top brass). Remember a stock buyback is no guarantee of a stock going up in value. Heck, that is almost the definition of a stock option. An option receiver will usually buy that stock from the company and sell it to the open market on the same day. That net transaction (company buys stock, CEO sells it) is NOT going to benefit you, since in the end there are the same number of shares on the market.

* Companies often buy back stock at high stock prices and years later need to raise cash at a much lower stock price. A company buying a share at $100 and later selling it (or issuing a new one) at $50 is a long-term net loss to you.

* Stock buybacks and similar schemes are short-term focuses. They take the CEO's and board's attention and turn it to short-term stock prices. That leaves far less time for them to think about the long-term. As you seem to be proposing that we should be buy and hold investors for the long term, I would think you'd propose that companies focus on long-term gains.

* Companies flush with cash often overpay employees, get excessive real-estate, use excessive interior decorators, etc. None of these maximize profits nor help your stock price. Enron went bankrupt yet had millions of dollars worth of art - that certainly wasn't money well spent (although, yes, they had bigger problems).

* I could go on and on. Dividends are the mechanism set up for you to get your investment back + gains. Don't muck with it. Dividend paying stocks get you regular profits. Non-dividend paying stocks have only two possibilities (a) finding a bigger sucker to pay more than you did, or (b) going bankrupt and you lose all. There is nothing wrong with taking the regular profits and keeping the company focussed on maximizing long-term profits.

Dullard, great post and explanation as usual. Now you can resume your lurking.

 

[Fritzo]

In a nutshell, when a company reaches it's growth potential, it realizes that investing back into the company will not create any more profit. Therefore it gives the money to the shareholders and they are free to use it to purchase more stocks.

Dividend stocks are very nice and generally low risk, but their payoff is on the lower side of the investment scale. It just depends on your investing strategy.

 

[IHateMyJob2004]

I can't understand why people like dividend paying stocks. I think it's never optimal for the company/shareholders to have dividends paid. Here's what I see:

At some point, a company will not grow anymore. When that happens, they can give out dividends or buy back stock. If hte stock is over-priced dividends are the better way to reward shareholders.

Even Buffett has shaid that Berkshire will have to eventually pay a dividend.

Anyway, alot of retired people like them because they view the company as a cash equivilent. And they live off the dividends. $1.5 million and the 3.5% yield that JNJ gives you is more than enough for an 80+ year old person to live off of.

 

[Juked07]

The idea of a company is pretty simple. A company takes investments, uses those investments to maximize profit, and returns any excess profits (those that cannot be used to maximize future profit) to investors. Take away that final step and you fundamentally break the equation.

Remember, over the history of the stock market, about half of all gains were in the form of dividends. When people say you historically make about 10% on stocks, that was ~5% on dividends and ~5% on stock price gains.

Non-dividend paying stocks end up with about ~5% on stock price gains and ~5% of mystery. Is that extra money handled well which add up to 10% stock gains? Or is it squandered leaving you with just the 5% in stock gains? It is a needless gamble. Take the 5% cash and 5% stock gain and be happy. If you want stock price gains instead of cash, reinvest that dividend back into the same company. Net effect to you is just about the same (even including the capital gains taxes on both, which are often long-term, there isn't much mathematical difference).

You are correct that dividends shouldn't be paid until the profit has been maximized. Reinvest it into the business to grow more, reinvest it to increase efficiency and reduce costs, etc. But many companies reach a point where the profit is already maximized. After that, that excess cash is just looking for trouble:

* Companies lose focus and expand into markets that are not their core business and often don't fit their sucessful business model. It may work, or more often than not, it is a disaster. How many mergers have occured when the company flush with cash overpaid? In any event (good or bad idea), mergers start with a net negative: premium required to entice the merger into happening + merger fees / royalties + merger transition costs. None of those costs are adding to your bottom line. If you wanted ownership of both company A and B, it would be better for you to buy shares in both rather than buying A and hoping the merger between A and B is a good one.

* Companies over-expand in a stagnant or dying buisness and that investment is now a liability. (Too many leases on property that isn't generating profits, too many employees that are a drain, too much capital that is now worth far less, etc).

* Companies buy back stock, excessively give it to top employees, who then sell the stock (net loss of money from the company, net zero for you since a share was both bought and sold, net gain to the top brass). Remember a stock buyback is no guarantee of a stock going up in value. Heck, that is almost the definition of a stock option. An option receiver will usually buy that stock from the company and sell it to the open market on the same day. That net transaction (company buys stock, CEO sells it) is NOT going to benefit you, since in the end there are the same number of shares on the market.

* Companies often buy back stock at high stock prices and years later need to raise cash at a much lower stock price. A company buying a share at $100 and later selling it (or issuing a new one) at $50 is a long-term net loss to you.

* Stock buybacks and similar schemes are short-term focuses. They take the CEO's and board's attention and turn it to short-term stock prices. That leaves far less time for them to think about the long-term. As you seem to be proposing that we should be buy and hold investors for the long term, I would think you'd propose that companies focus on long-term gains.

* Companies flush with cash often overpay employees, get excessive real-estate, use excessive interior decorators, etc. None of these maximize profits nor help your stock price. Enron went bankrupt yet had millions of dollars worth of art - that certainly wasn't money well spent (although, yes, they had bigger problems).

* I could go on and on. Dividends are the mechanism set up for you to get your investment back + gains. Don't muck with it. Dividend paying stocks get you regular profits. Non-dividend paying stocks have only two possibilities (a) finding a bigger sucker to pay more than you did, or (b) going bankrupt and you lose all. There is nothing wrong with taking the regular profits and keeping the company focussed on maximizing long-term profits.

You seem to think that I think companies should reinvest instead of paying dividends in general. I do not have this opinion at all, and I intended this thread to be about that discussion in no way. I only thought that buying stock was a better day of redistributing excess cash than paying dividends. I have since considered a few possible reasons buybacks may not be the best choice. My leading hypothesis is in my response to manly.

Several people responded to this thread as if the only choices to consider were pay dividends or reinvest. If you read the OP you'll see I don't really care about the decision between these options. I was only griping about the mechanism for redistributing excess cash.

 

[Juked07]

At some point, a company will not grow anymore. When that happens, they can give out dividends or buy back stock. If hte stock is over-priced dividends are the better way to reward shareholders.

Even Buffett has shaid that Berkshire will have to eventually pay a dividend.

Anyway, alot of retired people like them because they view the company as a cash equivilent. And they live off the dividends. $1.5 million and the 3.5% yield that JNJ gives you is more than enough for an 80+ year old person to live off of.

I'm going to sound like a broken record.. but since most people skip over most posts anyway, here it is again:

I stated no opinion about the decision to reinvest/grow vs pay out excess cash, only the way in which companies redistribute cash.

 

[Juked07]

Your post is the best explanation on the subject here and should be made a sticky. Hopefully the fresh noobs from MBA school will get it.

Another good example of Corporations squandering shareholder money VS paying out dividends.

DELL. when they used it to short puts on its own stock, hoping to use the premiums to boost EPS. Unfortunately for the shareholders those OTM puts went deep in the money and shareholders got the big shaft.

His post explains why companies should redistribute extra cash at some point. And I agree he does lay out this explanation well.

On the other hand it's not related to my question, which only concerned the method of redistributing extra cash.

Hopefully this third post in a row (sorry if I'm breaking repost rules) will finally get people to notice what the OP stated in the first place.

 

[Juked07]

I think Op is confused. Share price is determined in the marketplace, not by value of assets - liabilities. High profits >> ability to pay high dividends >> higher value of stock. You could always reinvest dividends paid to you in more stock if your focus is on capital appreciation.

Good one MrColin. Guess what the marketplace decides a stock should be worth if it was previously S and pays a dividend d?

If you guessed S - d, you're right! The marketplace isn't stupid. They can figure out that when a company hands out d of their assets, they are worth (at least) d less.

There are a lot of other half truths and shaky implications in other investment related ideas in this thread. If I have time I'll come back to try to address the ones I understand. I'm sure there are other points I don't understand, and I'm always looking to learn.. It's got to be good for us to get better educated in general..

 

[theeedude]

Ultimately, with any security, you are paying for inflation discounted future payments.
If a company is not paying a dividend because it's growing, it's because it's investing money to grow the dividends later. If a company is doing stock buy backs, it's reducing the number of shares so that each share is entitled to a higher dividend later.
So in either case, you are paying for future dividends, it just a matter of how big and how far in the future. With dividend stock, you are getting paid right now, it's like buying a bond that pays interest every year. There is nothing wrong with it, because guess what, if you think that stock repurchase would have been better use of that money, you can just use the dividend to purchase more of the company's stock. If you think growth was a better idea, buying more stock with the proceeds will grow your investment.

 

[LurkerPrime]

Good one MrColin. Guess what the marketplace decides a stock should be worth if it was previously S and pays a dividend d?

If you guessed S - d, you're right! The marketplace isn't stupid. They can figure out that when a company hands out d of their assets, they are worth (at least) d less.

There are a lot of other half truths and shaky implications in other investment related ideas in this thread. If I have time I'll come back to try to address the ones I understand. I'm sure there are other points I don't understand, and I'm always looking to learn.. It's got to be good for us to get better educated in general..

This usually happens because the stock price is run up prior to the ex-div date due to people buying the stock for the dividend, and then subsequently people selling right after the ex-div date. By your logic a company's share price would approach 0. The market couldn't really give a shit about your assets. Its all about revenue, profits, EPS and PE. Sure a high book value is nice, but if you can't make money with a better margin than your competitors with your assets, then you're not really a good investment.

 

[Juked07]

This usually happens because the stock price is run up prior to the ex-div date due to people buying the stock for the dividend, and then subsequently people selling right after the ex-div date. By your logic a company's share price would approach 0. The market couldn't really give a shit about your assets. Its all about revenue, profits, EPS and PE. Sure a high book value is nice, but if you can't make money with a better margin than your competitors with your assets, then you're not really a good investment.

Sigh, this is so wrong =(

Buying a stock for the dividend is NOT a positive expected value strategy. The market equilibrium share price is a function of the perceived value of the company, including all cash and assets. The perceived value of a company after they hand out cash is less by the amount of cash they now do not have. Therefore the stock trades lower on the ex date. It is not because the masses have collected a dividend and are now selling out. You're just paying fees if you try to execute this "strategy."

A company's share price does not approach zero if they are profitable because they GENERATE PROFITS. They then pay PART of the profit out as dividend, and therefore their share price is able to continue growing.

It's nice that you've heard of words like revenue, profits, EPS, and PE, but your demonstrated lack of overall understanding and misinformation is surely a disservice to the audience. Please don't do that..

 

[darkxshade]

So what exactly is the question? Since you seem to have brushed off all of the posts that made sense that that's not what you asked?

 

[Juked07]

So what exactly is the question? Since you seem to have brushed off all of the posts that made sense that that's not what you asked?

Are you serious? It's in the OP, and I've stated and restated it in my replies:

Companies have perfectly reasonable cause to put cash back in the hands of investors. Two ways to do so (perhaps there are others I am unaware of) are to pay dividends and to buy stock. I wanted to compare these two methods of redistributing profits.

My initial thoughts (see OP) were that dividends were strictly worse than buying back stock. Through this thread and other contemplation, we have discovered some reasons buy backs might suck. One major contender in my mind is that regulatory requirements for companies to buy back stocks result in companies being unable to buy at reasonable levels. Liquidity providers will fade, and other market participants will go the same way (akin to frontrunning) because they know a buyback is coming.

I don't know how I can make this question clearer..